UK factory decline shows signs of bottoming out

I am City A.M's deputy editor, having joined the newsroom in late 2010 as an economics reporter.

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Julian Harris

BRITISH manufacturing’s recent decline appears to have halted last month, with a closely-watched survey revealing yesterday that the sector is showing signs of stabilising.

The findings will raise hopes that factories will not weigh down on GDP in the second quarter of the year, giving the UK a chance to build on its positive 0.3 per cent first quarter expansion.

Markit’s latest purchasing managers’ index (PMI) for manufacturing came in at 49.8 for April – reflecting a slight contraction in the sector, yet moving close to the 50 line which indicates no change.

PMI scores over 50 indicate economic expansion.

The result is a turnaround from February’s four month low, when the PMI reading sank to 48.2. In March the manufacturing survey had also stayed in negative territory, at 48.6.

Having rebounded in the aftermath of severe recession, UK factories have struggled since the middle of 2011, failing to assist the government and Bank of England’s aim of rebalancing the economy. Out of the 20 months prior to April, 14 saw the UK manufacturing sector decline, according to Markit’s data.

Yet Markit economist Rob Dobson says there are signs of improvement.

“With forward-looking indicators such as new orders and the demand-to-inventory ratio also ticking higher, the sector should at least be less of a drag on broader GDP growth in the second quarter,” Dobson said, noting that the survey revealed “a solid improvement in new export orders”.

Markit will provide a greater insight into the state of the UK economy today and tomorrow, when it publishes its PMI figures for the construction and services sectors.

Yesterday’s better than expected data came as the Office for National Statistics (ONS) played down the UK’s double dip, suggesting that the picture of a second recession is overplayed.

GDP fell at the end of 2011 and start of 2012, but by only 0.1 per cent in each quarter. “Estimated growth of 0.1 per cent and minus 0.1 per cent in a quarter is actually within the statistical margin of error,” it said.

Rather than describing the UK as having had a second recession, the ONS says “the trend during this latest period is best described as one that is flat or at best gently rising.”